Free «Pension Crisis in Developed Countries» Essay Sample

Ageing population in developed countries comprise the largest proportion of the general population. This has been caused by low birth rate and increasing life expectancy. Presently, the proportion of the elderly in developed countries stands at 16% of the population (Jackson and Howe, 2008 p.4). This is four times more than the proportion during the industrial revolution. The situation is projected to worsen reaching 23% by 2030. In countries that are fast ageing, it is projected that the elderly people will comprise 35% of the population by 2050. This is a worrying situation since the elderly do not contribute to the GDP but rather dependent on pension. This means that the burden placed on workers to sustain the pension schemes is great, worsened by stagnant or declining working age population. In fact there are 25 pensioners for every 100 working age people currently, unlike in the 1980s where there were 20 pensioners for every 100 working people (Slater, 2008 p.81). By 2050 the situation is projected to worsen to 45% with Japan reaching 70%.

As mentioned earlier, low birth rate has been at the core of the whole problem of increasing ageing population. There are more old people than young people in developed countries. In Britain for instance, people aged above 65 are more than those aged below 18 years. In countries such as Germany, Japan and Italy, the birth rate is too low such that it can hardly lead to a stable population. In these countries each family has an average of 1.3 children. An average of 2.1 babies in every family is the right replacement rate for a stable population. Low birth rate in developed countries has one major cause: women marrying and having babies later in life. Education and career are more paramount to modern women than marriage. This is why most women marry after completing their education and advancing their career thus delaying marriage and child bearing. In Germany for instance, a quarter of women in their 40s are childless (Jackson and Howe, 2008 p.4).

Life expectancy in developed countries is expected to rise from 76 years currently to 83 years by 2050 according to the United Nations. The major government spending as concerns the elderly population are in the areas of healthcare and pension. In Japan, 8.7% of the GDP is used in financing pension schemes. This is expected to rise to 14.3% by 2030. Therefore for government to sustain this scheme the working people will have to pay more taxes. With the current economic melt-down such a move will meet stiff public opposition.

As the reality of the problem created by the ageing population hits, many governments of developed countries are introducing reforms in the area of public pension. The very first steps taken are increasing retirement age and discouraging early retirement. This is aimed at reducing the number of years a pensioner enjoys the benefits without having to work. Italy for example has increased the retirement age and the number of years that one needs to contribute to qualify for pension as well as cutting back on the benefits given to highest earners. Other countries are slowly reducing replacement rate of their pension but careful not to squeeze most poor pensioners too much.

In summary, increasing ageing population has created economic crisis in developed countries. Since the public pensions that have been in place for decades are currently unsustainable, reforms are inevitable. Many governments have therefore introduced reforms such as increasing retirement age; cutting back on benefits, increasing the number of years to contribute to the pension; and reducing replacement rate of pension. Even tougher measures are expected to be introduced in the future.


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